The fallout from the KPMG and McKinsey scandals in South Africa are taking some interesting twists. Initially, it appeared that those businesses might well face regulatory scrutiny for their collective service efforts in the country. For KPMG, its miss-steps involved auditing the Gupta family and its business interests. For McKinsey, it was working, with or without a contract for a Gupta family controlled partner in South Africa as part of a transaction with a South African state-owned enterprise.
Both companies now face potentially much greater backlash from their customers. First Barclay’s bank announced it was winding down its business with McKinsey. Then the worldwide reinsurer Munich Re decided it would drop its relationship with KPMG’s troubled South African office. This type of review, while not unprecedented is certainly something that bears scrutiny for every compliance practitioner as it demonstrates not only the potential reputational harm for engaging in unethical business practices, but the real risk for losing business opportunities.
At this point, however, things took an interesting twist. Both Barclays and Munich Re declined to stop doing business with McKinsey and KPMG outside of South Africa, and the companies received withering criticisms for their actions. Reports have cited an “inconsistent approach” of both Barclays and Munich Re in dealing with the situation. Commentators have alleged “there is enough evidence that [the companies’] unethical conduct is not limited to South Africa.”
All of this points to the growing interlocking and interdependence on compliance to not only vet partners but continue to assure ethical business behavior and conduct. If your contractual counterparties are caught in situations that have the appearance of unethical conduct, the cost to you in doing business with them going forward can certainly be reputational loss and business loss. As you move down the line from the [alleged] corrupt parties to several tiers out of [allegedly] innocent counterparties, you begin to see why doing business with other companies with a best practices compliance program and an ethical culture can be seen as moving from a business plus to a business must-have.